Data

Options mature after T=2 years and have a strike price K= $75

The price of the underlying stock price is $50.

The stock price evolves according to the Jarrow-Rudd specification in this 4 - period model with volatility = 0.3

The continuously compounded rate of interest is 5%.

Question

Compute the up and down factors for the stock price movements, the dollar return (1+R) for each period, and the synthetic probability of an up- and down-move. Note, as per Jarrow-Rudd